Treasury Outlook

This is due to the current influence on the forex rate from global factors rather than local factors.

In particular, Asian regional currencies have been moving in a pack, reacting to the fluctuating level of risk appetite in the world financial market.

When there is bad news in world financial markets, risk appetite wanes and the US dollar appreciates - as the market is treating the US dollar as a safe haven.

When there is good news, risk appetite sharpens and the dollar depreciates as investors diversify out of US assets.

After moving mostly sideways, the dollar is now breaking out of its range and taking a depreciating path as risk appetite comes back to the market.

In the past month, the greenback has lost 6.8 per cent against the Korean won, 3.8 per cent against the Singapore dollar and British pound, 3.3 per cent against the euro and 2 per cent against the baht.

The Libor rate, the lending rate among financial institutions, has fallen from 1.68 per cent to 1.46 per cent, indicating that banks are feeling easier about each other's credit risk.

The VIX, or volatility index, has fallen to 32, a level not seen since before Lehman's bankruptcy. The global oil price also has recovered from the low of $35 per barrel to $58 a barrel, a level not seen since last November.

The above indictors are pointing to improving economic sentiment. Whether this trend will continue is probably too early to tell.

For one thing, the global economy runs on credit, specifically credit expansion. If US financial institutions' balance sheets aren't healthy yet, then they can't lend adequately and business activities will not recover fast enough.

What it is signalling is that perhaps a floor may have been found for this recession. What exacerbated the slowdown in the export sector last year was the running down of inventories by businesses to reduce risk and conserve cash.

As those inventories have reached a depleting level, replacement orders are coming back in and should breathe some life back into international trade and export sectors.

Perhaps the most important signal that we can glean from the above improving economic sentiment is that it is reintroducing twoway risk back into the baht exchange rate.

Since April of last year, the baht has been on a mediumterm weakening trend when it depreciated from 31.4 to 36.5.

Whether this weakening trend is over will depend not just on Thai economic fundamentals but also on the global US dollar outlook and as well as risk appetite in the financial markets.

Lastly, one local economic fundamental figure that is worth mentioning is that in the first quarter, the trade and current accounts showed surpluses of $7.7 billion and $9.1 billion respectively - record surpluses for a quarterly period - which helped in pushing the baht up.